Stock Prices: Common Causes Why They Change
Every day we tend to observe the fast changes of stock prices. However, we may ask ourselves of the causes of the changes in stock prices. These stock prices change daily as a result of the market energies. Because of the many market forces, these stock prices easily alter. To make it very simple, this can be explained by the law of supply and demand. When there are more consumers who choose to buy a stock instead of selling it, the stock price is expected to increase. On the other hand, if the people would prefer more to sell the products rather than to buy them, the effect would be an more increased supply than demand, and eventually the stock price will fall.
Before we identify what the reasons of these movements are in the stock price, it might be better to know first the definition of the term, price. Commonly, financial theories define the word stock price as the current value of all the expected earnings of the entire company, and then divided to the total number of distinguished shares. With this, the definition of the term price is fully dependent with the company’s capacity to earn incomes. Often times these companies get meaningful value from a small investment in properties since the capacity for those properties to earn money is meaningful as well. Moreover, companies that are not earning so much today can still have a great share price because the stock price is entirely based on the future income of the company. No company is ever established to waste or lose money, but all are committed to earn as much money as possible, someday. Therefore, the earning that the company will have in the future, and the time he expects to achieve the growth of the company are the factors that would determine the stock of price of the company.
Hypothetically, when a person avails the shares of a specific company, they are certainly saying that they believe the shares of that company are underrated. But if one sells the share of a company, it is implied that they believe that the stock is overrated and the expected result would be that the stock will decrease in the future.
Below are the major reasons that cause these pattern of movements in stock price.
The number one reason is the information about a stock of how which the public is aware of anything about the stock. With this new knowledge, the market will decide if they would increase or decrease the price based on how the market observes the new knowledge to affect the earnings of the company.
Human psychology is another cause of this changes because human minds create possibilities that causes investors to invest more.
The last factor may be is the analysis of the supply and demand which gives opportunities to investors who are waiting to see the balance to come.